Question

The Walton Toy Company manufactures a line of dolls and a doll dress sewing kit. Demand for the dolls is increasing, and management requests assistance from you in determining an economical sales and production mix for the coming year. The company has provided the following data:

  

Product	Demand Next year (units)	Selling Price per Unit	Direct Materials	Direct Labor
Debbie	70,000	$38.00	$4.70	$3.50
Trish	62,000	$ 4.60	$1.60	$1.00
Sarah	55,000	$31.00	$9.44	$6.50
Mike	48,000	$14.00	$4.00	$4.50
Sewing kit	345,000	$ 10.00	$5.20	$0.50

The following additional information is available:  

The company’s plant has a capacity of 94,500 direct labor-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products.

The direct labor rate of $10 per hour is expected to remain unchanged during the coming year.

Fixed costs total $585,000 per year. Variable overhead costs are $3 per direct labor-hour.

All of the company's nonmanufacturing costs are fixed.

The company’s finished goods inventory is negligible and can be ignored.

Required:

1. Determine the contribution margin per direct labor-hour expended on each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.

2. Calculate the the total direct labor-hours that will be required to produce the units estimated to be sold during the coming year. (Do not round intermediate calculations.)

3. Based on response to Requirement 1 & 2, how much of 94,500 direct labor hours of capacity will be allocated to Walton Toy Company’s various products?

4. What is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource?

5. What is the highest price, in terms of a rate per hour, that Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

Product	Demand	Selling	Direct	Direct	Variable overhead V	Contribution margin per unit C= S-M-L-V	Hours per unitrequited H=L/D	Contribution margin perhour C/H
	Next year	Price S	Materials M	Labor L
	(units)	per Unit
Debbie	70,000	$38.00	$4.70	$3.50	1.05	$28.75	0.35	$82.14
Trish	62,000	$4.60	$1.60	$1.00	0.3	$1.70	0.1	$17.00
Sarah	55,000	$31.00	$9.44	$6.50	1.95	$13.11	0.65	$20.17
Mike	48,000	$14.00	$4.00	$4.50	1.35	$4.15	0.45	$9.22
Sewing kit	345,000	$10.00	$5.20	$0.50	0.15	$4.15	0.05	$83.00
	Direct	Direct labor rate	Hours per unitrequited H=L/D	Variable overhead 3*H
	Labor L	D
working
Debbie	$3.50	$10	0.35	1.05
Trish	$1.00	$10	0.1	0.3
Sarah	$6.50	$10	0.65	1.95
Mike	$4.50	$10	0.45	1.35
Sewing kit	$0.50	$10	0.05	0.15
ans 1	Contribution margin perhour C/H
Debbie	$82.14
Trish	$17.00
Sarah	$20.17
Mike	$9.22
Sewing kit	$83.00
ans 2
Product	Demand	Hours required	Total hours req
	Next year
	(units)
Debbie	70,000	0.35	24500
Trish	62,000	0.1	6200
Sarah	55,000	0.65	35750
Mike	48,000	0.45	21600
Sewing kit	345,000	0.05	17250
Total direct labor hours required			105300
ans 3
According to maximum contribution per hour by the product , the hours
will be allocated
Product	Total hours req	Contribution margin perhour C/H	Ranking	Hours allocated
Debbie	24500	$82.14	2	24500
Trish	6200	$17.00	4	6200
Sarah	35750	$20.17	3	35750
Mike	21600	$9.22	5	10800
Sewing kit	17250	$83.00	1	17250
	105300
Mike	(94500-24500-6200-35750-17250)			10800
ans 4
Maximum contribution
Product	Hours allocated	Contribution margin perhour C/H	Contribution
Debbie	24500	$82.14	$2,012,500
Trish	6200	$17.00	$105,400
Sarah	35750	$20.17	$721,050
Mike	10800	$9.22	$99,600
Sewing kit	17250	$83.00	$1,431,750
Maximum contribution			$4,370,300
If any doubt please comment